Southern Africa – An Economic Overview

1. Southern Africa – An Economic Overview Chris Hart: Chief Strategist 03 October 2013 Investment Attractiveness

2. Global Externalities African Growth Paradox SA Laggard and Leader African Megatrends Mining Industry

3. Investment climate dominated by monetary policy…authorities may be trapped Source: INet

4. US M2 money supply: 1970 to present…growth exponential; Policy irresponsibility Source: INet

5. Global debt levels are acceleratingMay well have developed into a systemic PONZI scheme Systemic collapse Credit worthy capacity Systemic instability Debt Debt needed to sustain the system BCA: the debt super cycle Time Over-indebtedness – debt & commitments un-payable

6. Financial repression consequently on the rise…. Red Tape Corruption Tax (Especially Wealth) Fiscal & Monetary Policy Tools of Repression Market Dominance Inflation/Deflation

7. Investment Divide Indebted politically more powerful than the saver • Yield • Growth • Solvency Dependent on Confidence Inherent Intrinsic Value Nature of Assets Policy Impact QE; LTRO; ZIRP Bonds Cash Property Precious Metals Industrial Equipment

8. Global Externalities African Growth Paradox SA Laggard and Leader African Megatrends Mining Industry

9. Reality: Africa a challenging business environment…but the 2008 global financial crisis exposed a shift Infrastructure Governance Institutions Regulation

10. Critical African Growth Unlocks…Growth surge following the 1997/8 EM crisis Governance Growth Drivers Cellular Telephony

11. Global Externalities African Growth Paradox SA Laggard and Leader African Megatrends Mining Industry

12. Electricity production:Reflecting a longer term malaise Source: INet

13. SA Business Confidence vs JSE All Share Source: Bloomberg

14. SA Growth: 0.9%….growth drivers weak Credit Expansion Disposable Income & Costs SA Growth Drivers Savings & Investment Global Economy Twin deficits and credit rating downgrade a risk ….but there are investment competitive advantages

15. SA: Current Account Deficit: major risk to the randWidening despite slower growth Source: INet

16. The rand: weakening during a risk-on period

17. African growth: become a multi-sectoral phenomenon…South African skills, expertise, capital a catalyst Manufacturing Telecoms Agriculture Mining Property Development Financial Services Tourism Technology Retailing

18. Global Externalities African Growth Paradox SA Laggard and Leader African Megatrends Mining Industry

19. Macro-economic outcomesImproving macroeconomic management Growth 5.1% 3.5% 3.6% 1995 2000 2011 40.1% Inflation 15.0% 8.2% Proof of the pudding

20. Budget Deficits: less problematic in Africa Angola +7.1% Gabon +4.6% Libya +4.4% Brazil +2.9% DRC +2.4% Switzerland +1.0% Sweden -0.2% Rwanda -0.4% CAR -0.5% Ethiopia -1.4% China -1.6% Equatorial Guinea -1.7 Ivory Coast -2.0% Madagascar -2.0% Cameroon -2.5% Germany -3.3% Zambia -3.3% Nigeria -3.4% Uganda -3.5% Russia -4.1% South Africa -4.1 Italy -4.6% Mauritius -4.6% World -5.3% Netherlands -5.3% India -5.6% Mozambique -5.8% Tanzania -6.1% Kenya -6.3% Namibia -6.5% Botswana -7.0% France -7.0% Ghana -7.6% Slovakia -7.9% Egypt -8.0% Japan -8.1% USA -8.8% Niger -8.9% Portugal -9.2% Spain -9.3% UK -10.3% Greece -10.4% Ireland -32.4% Data for 2010 Source: CIA Factbook

21. Debt: aftermath of 2008…rising and excessive Source: CIA Factbook

22. Africa: HIPC status now a receding legacy Source: CIA Factbook

23. Improving African Investment Case…in contrast to the developed world deterioration The Public Teat Demographics Economic Base Africa’s Time Has Come Sovereign Solvency Regeneration Improvement both relative and absolute

24. Africa: no longer off a low base Source: CIA Factbook

25. Political RiskRating agencies and investors Africa Europe Solvency Solvency Taxes Tax Burden Jurisdiction risk is changing. ...but Neither Africa nor Europe completely homogeneous

26. The 3rd scramble for Africa Resource Security Infrastructure Food Energy Commodities Coordinated investment Investment competition China Factor Strategic Relationships Greater confidence; greater assertiveness

27. Investment TimelinesGetting longer Yield Growth Solvency

28. Global Externalities African Growth Paradox SA Laggard and Leader African Megatrends Mining Industry

29. Gold mining: in a state of crisis…SA now ranked #5 globally (2012) However still ranked #1 in terms of reserves Source: INet

30. Mining Production: lowest since 1970’s…strikes, regulation, taxes SA still ranked #1 in terms of mining potential (Citibank) Source: INet

31. Mining in South Africa…the importance of a supportive, enabling environment Critical Mass Skills Finance Logistics Transformation Legacy Issues Easy to Identify SA: 50/93 ito Attractiveness Lost leadership Social Impact Beneficiation Competitiveness Minerals of no value if not extracted

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